• OIG Findings Regarding Medicare Part B Reimbursement for Oncology Drugs
  • August 5, 2006 | Authors: Claudia Schlosberg; Jessica M. Swartz
  • Law Firm: Blank Rome LLP - Washington Office
  • I. Introduction

    In June, 2006, the Department of Health and Human Services (HHS), Office of Inspector General (OIG) published: A Comparison of Average Sale Prices to Widely Available Market Prices: Fourth Quarter 2005 (hereinafter “Report”).1 The Report concludes that for five of nine procedure codes reviewed, the average sales price (ASP)2 exceeded the widely available market price (WAMP)3 by at least 5% and that the difference between ASP and WAMP for these five procedure codes ranged from 17% to 185%. The OIG estimates that Medicare could save as much as $67 million in 2006 on these five procedure codes alone if reimbursement amounts were lowered to WAMP.

    II. Background

    The Medicare Modernization Act (MMA), Section 1847A of the Social Security Act (SSA), changed reimbursement for Medicare Part B drugs from 95% of average wholesale price (AWP) to 106% of ASP net of volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than Medicaid rebates).

    MMA gives the Secretary of HHS (hereinafter “Secretary”) authority to disregard the ASP for a drug or biological under two circumstances. The first is if there is a public health emergency, a documented inability to access drugs and biologicals, and a concomitant increase in the price which is not reflected in the manufacturer’s ASP for one or more quarters. The second is if the ASP for a drug or biological exceeds the WAMP or the AMP by 5% in 2005 and 2006, and by an amount specified by the Secretary for subsequent years. See SSA §1847A(d)(3).

    The OIG is responsible for conducting studies, including surveys, to determine the WAMP for drugs and biologicals. If the OIG finds that the ASP for a drug exceeds the WAMP or AMP by more than the applicable percentage, the Secretary must substitute either the WAMP or 103% of ASP, whichever is lesser, beginning with the next quarter. See SSA §1847A(d)(3)(C).

    III. Scope of OIG Review

    For this Report, the OIG reviewed a sample of forty procedure codes used in a September 2005 study of physician hematology and oncology practices’ ability to obtain drugs at 106% of ASP. Using the data from that study, the OIG found that physicians paid at least 5% over ASP for nine of the forty procedure codes. The OIG compared the second quarter 2005 volume-weighted ASP with the fourth quarter 2005 WAMP for each of the nine codes.

    Of these nine procedure codes, five had a volume-weighted ASP that was more than 5% over WAMP (ranging from 17% to 185%), not including physician discounts. See Table 1 for the five procedure codes and price differences identified by the OIG.

    Table 1: Procedure Codes Identified by OIG4

    Procedure Code

    Short Description

    Widely Available Market Price

    Second Quarter 2005 ASP

    Percentage Difference







    Dexamethasone sodium phosphate





    Dolasetron mesylate





    Vinorelbine tartrate





    Granisetron HCI




    IV. CMS Comments and OIG Response

    A. CMS Comments

    In its response to the Report, CMS stated that the findings “are very helpful to our ongoing efforts to enhance implementation of the new ASP methodology,” but that it disagreed with the OIG’s final calculation.5 CMS stated that because the OIG’s analysis was based on forth quarter 2005 pricing data, it did not accurately reflect a recent downward trend in drug prices. According to CMS, the trend caused the actual Medicare prescription drug expenditures for the five procedure codes studied to be substantially less than what the OIG calculated. Specifically, CMS stated that the price for carboplatin, the drug for which the OIG cited reimbursement at 185% over ASP, went down 60% in the two quarters subsequent to the OIG’s examination.

    B. OIG Response

    The OIG responded to CMS’ comments by stating that CMS has not specified a plan to further reduce the amount of money it pays for prescription drugs and pharmaceuticals. The OIG recognized that prices for certain drugs have gone down since its initial review, but states that of the five procedure codes which were reimbursed above 5% over WAMP using the September 2005 pricing conventions, four still remained in that category when the pricing was updated to reflect changes. The OIG also pointed out that even though the price for carboplatin decreased, it is still over 12% above WAMP. It concluded by stating that the MMA requires the Secretary of HHS to use either WAMP or 103% of AMP for the four procedure codes the OIG cited as being more than 5% over WAMP.

    V. Conclusion

    It is clear that tension between the OIG and CMS continues regarding how CMS should respond to the OIG’s findings regarding the pricing of prescription hematology and oncology drugs under Medicare Part B. While it appears that CMS is not going to take action to lower reimbursement at this time, the OIG continues to vigorously pursue investigation of pharmaceutical pricing. Further, the OIG has authority to impose civil money penalties for misrepresentations in the reporting of ASP prices for drugs or biologicals. Penalties may be imposed in an amount of up to $10,000 for each price misrepresentation and for each day in which such price misrepresentation was applied. Accordingly, manufacturers are reminded of the importance of accurately calculating and reporting ASP for their Medicare Part B reimbursable drugs and biologicals.

    For further information or assistance regarding the OIG report or other pricing issues, please contact a member of the Blank Rome Health Law Practice Group.

    Claudia Schlosberg is a partner in the Washington, D.C. office of Blank Rome LLP and a principal in Blank Rome Government Relations LLP. She focuses on health care policy, regulation and compliance issues. Ms. Schlosberg can be reached at 202.772.5985.

    Jessica M. Swartz is an associate in the Washington, D.C. office of Blank Rome LLC. She can be reached at 202.772.5871.

    Blank Rome’s Health Law Practice Group focuses on the core areas of Acute Care, Hospitals, and Health Systems; Compliance and Enforcement; Home and Community Based Care; Long Term Care; Health Insurance and Managed Care; and Public Health. The Health Law Practice Group serves clients nationally in more than 29 states, and internationally through affiliations in the United Kingdom, and the Far East.


    1.       Daniel R. Levinson, Inspector General, Dept. of Health & Human Svcs., A Comparison of Average Sales Prices to Widely Available Market Prices: Fourth Quarter 2005, OEI-03-00430 (June 2006) at www.hhs.oig.gov (hereinafter “Report”).

    2.       ASP is the amount of a manufacturer’s quarterly sales “to all nonexempt purchasers” divided by the total number of a manufacturer’s quarterly units “sold…in that same quarter.” ASP is calculated after any price concessions, discounts, or other rebates are applied. Report at pg. 2 (SSA § 1847A(C)).

    3.       WAMP is “the price that a prudent physician or supplier would pay for the drug, net of any routinely available price concessions.” Report at pg. 3 (SSA § 1847A(d)(5)(A)).

    4.       This table is taken from report at 10.

    5.       Letter from Mark B. McClellan, Administrator of Dept. of Health and Human Svcs. to Daniel R. Levinson, Inspector General (May 12, 2006)(Report at 14).